This report is an updated version of the report published on 20 January 2024 at 2:31 PM AEDT.

PlaySide Studios Limited (ASX: PLY)

PlaySide Studios Limited (ASX: PLY) is an Australian video game developer and publisher. With a portfolio of around 70 titles, the company develops games for mobile, PC/console, virtual reality, and mixed reality.

Recommendation Rationale - SELL at AUD 0.460

• Lower FY25 EBITDA Guidance: PlaySide's expected EBITDA for FY25 is lower, ranging between AU$0-5 million, compared to the strong AU$17.5 million in FY24. This substantial drop suggests that while revenue growth may continue, profitability could be under pressure in the near term, possibly due to higher investment costs related to game development and marketing.
• Cash Balance Decline: The company anticipates a reduction in its cash balance from AU$37.1 million in FY24 to between AU$15-20 million by the end of FY25. This suggests that significant cash outflows will be needed for the development and marketing of large projects like MOUSE and the Game of Thrones If these investments do not yield expected returns or face delays, the company could face liquidity pressures.
• Market Saturation and Competition: The video game development industry, especially for PC/Console titles, is highly competitive, with numerous large and established players. PlaySide may struggle to differentiate itself and achieve sustained success, particularly when competing against AAA studios and other independent developers.
• Uncertain Revenue Growth: While PlaySide has ambitious plans for game launches and marketing in FY25, the revenue guidance of AU$62-68 million represents only modest growth from the FY24 revenue of AU$64.6 million. This indicates that while new game releases are planned, they may not immediately generate substantial new revenue, or the market may be cautious about the financial impact of these projects in the short term.

PLY Daily Chart

Daily Technical Chart, Data Source: REFINITIV

Valuation Methodology: Price/Cash Flow Approach (FY Jun'26E) (Illustrative)

PLY is expected to trade at a premium compared to its peers considering the continued investments, 70+ titles developed across various platforms, and 67% revenue CAGR over the past five years, with record levels of revenue and earnings in FY24. For conducting the valuation, the following peers have been considered: Hipages Group Holdings Ltd (ASX: HPG), Superloop Ltd (ASX: SLC), and Domain Holdings Australia Ltd (ASX: DHG).

Considering the rally in share price movement, current trading level, and risks associated, the share price can witness resistance at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 0.460, as of 20 January 2025, at 11:30 AM AEDT.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 20 January 2025. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.    

Note 4: Kalkine reports are prepared based on the stock prices captured either from REFINITIV or Trading View. Typically, REFINITIV or Trading View may reflect stock prices with a delay which could be a lag of 25-30 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Resistance 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Resistance 2 may act as the crucial resistance level for the stock.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.